Forms of Ownership Flashcards
Governmental Powers in RE
Some powers are reserved for the government and are not transferred to any owner including police power, eminent domain, taxation and escheat.
Purpose is to “enact measures to preserve and protect the safety, health, welfare and morals of the community.”
Police power
is the right of states to make laws governing safety, health, welfare and morals derived from the Tenth Amendment to the US Constitution. Tenth states “ the powers not delegated to the US by the Constitution, nor prohibited by it to the states, are reserved to the States respectively or to the people.
Sate Legislatures exercise this power by enacting statutes and they delegate much of their police power to counties, cities, towns, villages and large boroughs within the state.
Areas such as zoning and building codes fall within police power, as do gambling rules and regulations, anti discrimination laws, crime statutes, licensing of professionals, schooling, sanitation etc.
Fifth Amendment and Taking clause
Fifth amendment states “No person shall be deprived of life, liberty or property without due process of law; nor shall private property be taken for public use without just compensation.”
Taking clause: within the Fifth Amendment, a landowner whose property is take for the betterment of the public must receive just compensation. Typically compensation can be negotiated between landowner and the public agency to arrive at a fair market value.
Condemnation
When landowner is not willing to negotiate in good faith with the public agency and essentially forces the set to take the property through condemnation.
or The landowner can freely dedicate the property in the best interest of the public.
Condemnation is therefore the process used to exercise eminent domain.
Eminent Domain
Is the power to take private property for use by a state, municipality private person or corporation authorized to exercise functions of public character, following the payment of just compensation to the owner of that property.
Federal, state and local governments may take private property through their power of eminent domain or may regulate it by exercising their police power.
Condemnation is therefore the process used to exercise eminent domain.
All property rights are subject to eminent domain proceedings including land, air and water rights. Throughout proceedings, the property owner has the right of due process.
Inverse Condemnation
Is a situation in which a landowner who owns property adjacent or surrounding land that’s been taken by a public agency suffers a devaluation of his property yet receives no immediate compensation.
These property owners may bring a lawsuit of increase condemnation action to be compensated for the loss. The hard part is determining the value of loss that’s occurred and is often negotiated between the landowner and the public agency.
Taxation
Taxation is a charge on real property owners to cover the funds needed to operate the government facilities, services and special projects.
Escheat
A legal process by which the state or local government takes property from a deceased person who dies with no legal heirs or a will directing the property to be transferred to a third party.
The purpose of this law is so that no property remains ownerless or left in disrepair.
Escheat can benefit the county where the property is located or the state.
Taking Ownership in Real Estate
There are 3 common methods of ownership:
- Severalty (one owner)
- Co-ownership
- Trusts
Severalty
Common and occurs when only one person acquires the rights to a parcel of real property.
In severalty the owner has all the right and privileges of the property and can sell, give away, lease or otherwise transfer the property at his sole discretion.
Co-Ownership
Is Ownership enjoyed by two or more owners at the same time.
- Most states commonly recognize several forms of co-ownership, such as
1. Tenancy in Common (TIC) and
2. Joint Tenancy.
- Tenancy in Common (TIC) and
Ownership is divided NOT the property therefore is considered an un-dividable interest.
- TIC can allow for disproportional or fractional interest in the property.
- TIC owner can sell, trade or give away or will their portion to whomever they choose without the consent of the other TIC owners.
TIC operating agreement: they will offer another owner the first chance to buy the property if they choose to sell.
No one owner can transfer the entire property without the agreement of every owner.
Each owner can acquire their interest at a different time.
Joint Tenancy
Another form for Co-ownership.
Here tenant may be a single person or legal entity.
Major difference between Tenancy in Common and Joint Tenancy
- Main difference is when an owner in Joint Tenancy dies, his portion transfers equally to the surviving members without any court action needed. This is known as right of survivorship and is shared by all the owners of the joint tenants. Due to this right, a joint tenancy even during his lifetime, CAN NOT give away, will or trade his interest in the property. Essentially the ownership is now divided by one fewer owner.
This process of survivorship continues until the last-named owner is the only one living. IN this case, the lone survivor now owns the property in severalty and can sell, give away or lease the property at his discretion. the survivor can also will the property to his heirs or successors upon his death.
- Unlike TIC, the required right shared by the owners of joint tenancy is the unit of interest or equal ownership interest. They all must own equal interest. These interest are also indivisible (property can not be divided) like with Tenancy in Common.
- Third unity is the unity of time so all owners received the interest at the same time unlike TIC where they can acquire interest at any time frame.
- Unity of title requires all owners be named on the title insurance stipulating that they are ones of Joint Tenancy.
Joint Tenancy therefore has 4 unities: PITT- Possession Interest Time Title All owned equally
Partition
When Co-Ownership must be dissolved due to irreconcilable differences.
Partition is a legal method to separate parties of co-ownership we the parties do not or cannot voluntarily agree and divide the property into individual shares among the owners allowing each owner to move forward with his or her share independently.
In extreme cases, a court order can order the entire property to be sold if the property cannot be divided without harming its overall value. The proceeds would then be divided among the owners per their pro rata share.
Tenancy by the Entirety
A special form of Joint Tenancy reserved for married couples.
Upon the death of a spouse, the survivor inherits the others ownership without required court processes. Because of the right of survivorship requirement under Joint Tenancy, neither party may transfer ownership without consent of the other. During their lives, they both must consent to a sale and signing of a deed to convey the property.
Community Property or marital property
Some states recognize that all marital property is considered equally owned but most states allow more flexibility in property division shovel the couple get a divorce.
Separate property is property one spouse owns before the marriage and is not subject to division should a couple get a divorce.
Trust (a third form of Ownership)
A trust is a fiduciary arrangement created by a trustor that allows a third party or trustee to hold assets on behalf of a beneficiary.
Trustor (JWIW)-Trustee (Jonathan Michael) - Beneficiary (AW)
Living Trust
A trust created during the life of a Trustor used to as an estate planning tool to create and protect the wealth of the owners.
The advantage of a living trust is its billet to decrease the time and costs of probate.
In a living trust, the truster transfers ownership of the property into a trust and OFTEN declares himself as the trustee. This way the control of the asset is never lost or turned over to another person.
The truster can also name himself the primary beneficiary and maintain the enjoyment of the property.
Upon the death of the trustor, who is also the trustee, the property under the terms of the trust, transfers to a named secondary beneficiary. This is the simple transfer of property from trust to beneficiary and not a Inheritance such as parent to child.
Testamentary Trust
If the trustor uses his will as a vehicle to create a trust after his death.
Living Will
Not to be confused with Testamentary Trust where a will is used to create a trust.
The living will also called a directive to physicians or an advance directive, is a document that lets people state their wishes for end-of-life medical care in case they become unable to communicate their decisions. It has No Power after death.
Probate
Is the legal process whereby a will is proved factual, validated, in a court and accepted as a valid public document that the true last testament of the deceased.
Land Trust
Form of ownership used to hold real property.
Benefit of land trust that there usually are NO public records of the beneficial party holding the interest.
Beneficial interest in a trust can be used as collateral for a loan without a mortgage being recorded.
A beneficiary’s interest is inheritable
and can be transferred upon death of the beneficiary to another party.
Living Trust
Is defined for a given term and must be renewed by the beneficiary or else the trust could expire. Upon expiration of the beneficial interest, the trustee must sell the real property; pay off the underlying note if any; and give the proceeds to the beneficiary.
